Janet Consumes X₁ and X₂ together in Fixed Proportions

question 26

Multiple Choice

Janet consumes x₁ and x₂ together in fixed proportions. She always consumes 2 units of x₁ for every unit x₂. One utility function that describes her preferences is

• A) U(x₁, x₂) = 2x₁x₂.
• B) U(x₁, x₂) = 2x₁ + x₂.
• C) U(x₁, x₂) = x₁ + 2x₂.
• D) U(x₁, x₂) = min{ 2x₁, x₂}.
• E) U(x₁, x₂) = min{x₁, 2x₂}.

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Definitions:

Real Interest Rate

The interest rate adjusted for inflation, reflecting the true cost of borrowing or the true return on savings.

Real Interest Rate

The interest rate that accounts for inflation, indicating the actual cost of borrowing and the genuine return for lenders or investors.

Dollar Amounts

Refers to monetary values expressed in terms of the U.S. dollar, important for financial reporting and transactions.

Price Indexes

Statistical measures that track changes in the price level of a basket of consumer goods and services over time, indicating inflation or deflation.